A Day In The Life Of A Debt Wizard 1

CASE STUDY ONE

The Facts:A police officer with unsecured liabilities of £52,000, (consisting of credit cards, personal loans and overdrafts) was struggling to make his payments every month to the various companies to whom he owed money ("the creditors") In an attempt to free up more money he opted to stop his monthly payments into his Police pension, this saved him around £190 per month which he then offered to his creditors.

This individual resided in rented accommodation and had no assets of any significant value other than a car worth around £6,500. After working out his average monthly income and expenditure, it became quite apparent that his true disposable monthly income, after paying all household expenses NOT INCLUDING his creditors was £440 per month; no wonder he was struggling to make his contractual payments of £1,310 per month to his creditors as this is a shortfall of £870 each and every month. In all probability he would not lose his job if he was declared bankrupt in light of the more sympathetic way employers now view bankruptcy within their organisations; particularly the Police, however, bankruptcy for him was to be the last resort.

The Advice: First he was encouraged to restart his pension scheme and then it was recommended that he proposed an Individual Voluntary Arrangement, "IVA", to his creditors. The proposal would entail monthly payments equivalent to his disposable income, £440 over a period of 5 years, the allowance of £190 per month was shown to enable him to re start his pension. Creditors were contacted immediately, advising them that he was seeking professional advice in order to address his financial problem, thus alleviating the debtor from the constant pressure from creditors.

The Outcome:Approximately 9 weeks after the initial consultation a meeting of creditors was held, at which the individual's proposal for an IVA was accepted with one modification, creditors asked that the debtor sell his vehicle, currently worth £6,500 and to purchase a cheaper car for around £3,000 with the surplus £3,500 being paid into the IVA, this was agreed and was seen by creditors to be a goodwill gesture by the debtor.

His unsecured creditors are bound by the terms of the arrangement and can no longer add any interest or charges to the accounts. Providing the debtor continues to make the monthly payment to the Supervisor of his arrangement, who will then distribute the funds to his creditors, at the end of the arrangement his unsecured liabilities will be deemed to have been legally discharged. It is not projected that creditors would have received much of a return in the event of the individual's bankruptcy, as apart from the vehicle, there were no other assets to speak of. In the IVA creditors will receive a return of circa 41% providing the IVA is completed in accordance with the terms. The debtor had no further contact with the creditors.

CASE STUDY TWO

The Facts:An ambulance driver owed £27,000 on credit cards and loans, and was able to meet her payments to creditors as her partner paid half the rent and utilities each month. Unfortunately, the relationship broke down and her partner left, this naturally caused a severe cash flow problem as the client now had to meet the rent and other bills in full. It had been some three months before this individual sought help, by now payments had been missed to the credit card companies, legal action was being threatened by creditors and naturally she was concerned and stressed Another anxiety for her was that at sometime in the future she would want to purchase her own home but could not do so with her burdening debt problem.

The Advice:After completing an income & expenditure form it was soon established that the amount of monthly disposable income, after accounting for the necessary household expenditure, was £490. The normal contractual payments to her creditors were around £830 per month. If the debtor had proposed an IVA which entailed monthly contributions over a period of 5 years then the total contribution would have been £29,400, (60 x £490), although this is more than what she actually owed (£27,000) the creditors would only have seen a return of around 71p in the pound due to the fees for the IVA which would have been taken from her contributions over the 5 year period. In a bankruptcy scenario, creditors would still receive a low return due to the administration fees, the debtor would also be asked to make 36 monthly contributions by way of an income payment order, or agreement, from the date of bankruptcy, as apposed to 60 months in the IVA.In this situation an insolvency route was not necessary as there was a far more suitable solution for both the debtor and creditors. I advised my client to enter into a debt management plan with her creditors.

The Outcome:The debtor telephoned the Debt Management Company, DMC, and eventually was helped to set up an informal arrangement with her creditors, paying £490 per month. The creditors will be paid in full. Although her credit rating is impaired, credit was, as in many cases, her downfall and it is probably helpful that she is not able to obtain further borrowing for the time being. Only when she is back in control of her finances can she begin to plan for the future, which may well include that house purchase. Again guidance was given as to future money management.

In the preparation of this article, every effort has been made to offer the most current, correct and clearly expressed information possible. However, it is not intended to serve as legal advice and you are encouraged to consult with professional advisors for advice concerning specific matters before making any decision.